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The Treasury has unveiled the terms of the Martin Wheatley review of how the Libor market operates.

The chancellor has commissioned Wheatley (pictured), managing director of the Financial Services Authority, to conduct the review after Barclays(BARC.L) admitted to manipulating the Libor framework, resulting in a £290 million fine for the bank.

It also comes as Royal Bank of Scotland (RBS.L) chief executive Stephen Hester warned his bank is also likely to be fined for rigging the Libor rate. Other banks are reported to helping authorities with their inquiries.

Chancellor George Osborne has demanded a swift resolution and wants the findings from the Wheatley review to be delivered by September.

The terms of the review are designed to provide a better framework for setting and governing Libor, which will make it less easy to abuse.

It will consider the following points:

Whether participation in the setting of Libor should be brought under the Financial Services and Markets Act 2000 as a regulated activity;

How Libor is constructed, including the feasibility of using of actual trade data to set the benchmark;

The appropriate governance structure for Libor;

The potential for alternative rate-setting processes;

The financial stability consequences of a move to a new regime;

Determining the adequacy and scope of sanctions, which could include criminal prosecution for those involved, to appropriately tackle Libor abuse;

The scope for UK authorities to employ civil and criminal sanctioning powers with respect to financial to financial misconduct;

Whether similar considerations apply with respect to other price-setting mechanisms in financial markets.

Once the review is complete, the government will consider recommendations with a view to taking legislative changes forward through the Financial Services Bill, which is currently being scrutinised in the House of Lords.

A discussion paper will be published by Wheatley on 10 August.

Wheatley said: ‘This [Libor] benchmark rate is used globally for trillions of dollars worth of financial contracts. Therefore, it is clear that urgent reform of the Libor compilation process is required.

‘Such reform may include amendments to the technical definitions used for Libor, the associated governance framework and the role of official regulation. The review will also consider whether similar measures are required for other existing benchmarks.’